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January 11, 2018

ESMA published a thematic report on fees charged by credit rating agencies (CRAs) and trade repositories. This report follows the conclusion of the supervisory review of ESMA on the fee structures in the credit rating and trade repository industries. The thematic report identifies the areas for improvement regarding transparency and disclosure, the fee-setting process, and the interaction with entities related to CRAs and trade repositories. Going forward, these areas will form the core of the supervisory focus of ESMA.

The report contains views of ESMA on the application of the requirements that fees charged by CRAs should be non-discriminatory and cost-based and that trade repositories provide non-discriminatory access and charge publicly disclosed and cost-related fees. ESMA identified the following key concerns related to the fee provisions and improvements in the practices followed by CRAs and trade repositories:

  • Transparency and disclosure. CRAs and trade repositories need to ensure sufficiency and clarity of information provided to actual and potential clients as well as to ESMA. CRA clients should be able to understand the key elements of the fee schedule and reasons for deviations from it, in addition to the reasons of price increases/decreases. Trade repositories can achieve more transparency by reducing complexity and increasing comparability of fee schedules and by disclosing sufficient information, to enable clients to estimate additional reporting costs.
  • Fee-setting process. CRAs and trade repositories must ensure that cost is a key pricing factor and sufficient controls are in place to demonstrate that the regulatory objectives regarding pricing are met.
  • Interaction with entities related to CRAs and trade repositories. CRAs must ensure that provision of rating-related services by affiliated entities does not conflict with the non-discrimination and cost-based principles. Trade repositories that are part of a group need to ensure that intra-group transactions are on reasonable terms and on an "arms' length principle" to prevent discriminatory access and unfair cost allocation.

Related Link: Press Release

Keywords: Europe, Securities, CRA, Trade Repositories, Fee-Setting Process, Disclosures, ESMA

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